Business context and reporting period
Filing identity: The request identifies Clearway Energy, Inc., but the supplied Form 10-K is for NRG Yield, Inc. (NYSE: NYLD). This is an annual report for the fiscal year ended December 31, 2013, not a standalone fourth-quarter filing. The 2013 results combine the accounting predecessor’s results before the July 22 IPO with consolidated company results thereafter; comparisons with 2012 therefore require care.
NRG Yield owned contracted U.S. generation assets totaling 1,324 net MW, plus thermal infrastructure with 1,346 net MWt of steam/chilled-water capacity and 123 net MW of electric capacity. Generation contracts had a weighted-average remaining term of about 16 years. NRG retained control, holding 65.5% of voting power; public Class A holders held 34.5%.
Financial and operating highlights
| Metric | 2013 | 2012 |
|---|---|---|
| Operating revenue | $313 million | $175 million |
| Operating income | $128 million | $31 million |
| Net income | $109 million | $13 million |
| Operating cash flow | $141 million | $58 million |
| Capital expenditures | $238 million | $380 million |
| Cash and cash equivalents at year-end | $36 million | $22 million |
| Total assets | $2.313 billion | $1.964 billion |
| Total liabilities | $1.302 billion | $1.124 billion |
2013 operating margin was approximately 41% and net margin approximately 35%, calculated from reported consolidated figures; these full-year figures include pre-IPO predecessor results and are not wholly attributable to public shareholders. From the IPO through year-end, net income attributable to NRG Yield, Inc. was $13 million, or $0.57 per weighted-average Class A share. Cash flow from investing activities was negative $388 million and financing activities provided $261 million.
Year-end consolidated debt was $1.133 billion, all at non-guarantor subsidiaries; the company also reported its proportionate share of unconsolidated affiliates’ debt of about $715 million. Liquidity was reported at approximately $150 million, including cash, restricted cash and revolver availability. The $60 million revolving facility was undrawn at year-end. The filing reports $90 million of project-level letters of credit outstanding.
By segment, 2013 revenue was $82 million conventional generation, $79 million renewables and $152 million thermal. Net income was $64 million, $40 million and $20 million, respectively, with a $15 million corporate loss. Pacific Gas and Electric accounted for approximately 34% of consolidated revenue.
Material changes versus prior periods
- Revenue rose $138 million, or 79%, from 2012, primarily as Marsh Landing began commercial operations and Alpine, Avra Valley and Borrego entered service; Dover was repowered and Princeton Hospital contributed a full year of operations.
- Operating costs increased $15 million and depreciation and amortization increased $26 million, largely reflecting the new operating assets. Interest expense increased $7 million.
- Operating cash flow increased $83 million. Investing outflow decreased by $17 million, reflecting lower construction spending, partly offset by the $120 million Omaha thermal acquisition and higher restricted cash.
- The company completed its July 2013 IPO, issuing 22.5 million Class A shares at $22 per share. It acquired Energy Systems Company in Omaha for approximately $120 million on December 31, 2013.
- Alpine, Borrego, Marsh Landing and CVSR achieved commercial operations during 2013. The 2012 comparison reflects predecessor carve-out results, not a full year of public-company operations.
Outlook, commentary, risks and unusual items
- Management’s strategy is to grow through acquisitions of contracted generation and thermal assets and to increase cash dividends over time. It intends to distribute all or substantially all cash available for distribution, subject to reserves, financing restrictions and board discretion; no quantified long-term earnings or dividend guidance is provided.
- NRG had granted a right of first offer on six assets through July 2018, and expected to offer certain assets in 2014. NRG was not obligated to sell, and any acquisition depended on acceptable terms and financing. NRG’s proposed acquisition of Edison Mission Energy was pending approvals and court confirmation.
- The company paid a $0.23-per-share quarterly dividend in December 2013 and declared $0.33 per share in January 2014, payable in March. The board may reduce or discontinue dividends; project debt covenants can restrict upstream distributions.
- After year-end, the company closed a $300 million offering of 3.50% convertible senior notes due 2019; purchasers exercised an option for an additional $45 million. The initial conversion price was $46.55 per Class A share. The filing said proceeds were expected in early March 2014.
- Government grants were material: Alpine’s $66 million grant was received in January 2014. CVSR received a $285 million net grant award versus a $392 million net application; proceeds helped repay bridge loans, and CVSR was evaluating recovery options for the reduction. Borrego’s expected grant was reduced to $36 million after sequestration; receipt remained uncertain.
- Key risks include operating performance and weather variability at relatively new assets; counterparty concentration and contract renewal risk; project-level debt, covenants and refinancing needs; reliance on NRG for management and operations; NRG’s control and related-party conflicts; regulatory and environmental changes; and uncertainty over renewable incentives and grant proceeds. The company estimated that it would not pay significant federal income taxes for approximately ten years, subject to realization and limitations on tax benefits.
- GenConn faced litigation over defective Middletown electrical equipment and a contractor’s counterclaim; the units returned to service in January 2013. Management expected ordinary-course litigation not to materially affect results, but the specific claim remained under assessment. The filing reported no Item 3 legal proceedings for the registrant.
- Quarterly 2013 consolidated revenue was $86 million and net income $24 million in Q4. The filing does not provide a clear standalone Q4 cash flow or public-company attributable EPS figure.
Most important facts to verify
- Confirm the issuer: the supplied filing is for NRG Yield, Inc., not Clearway Energy, Inc.
- Review the full financial statements and notes for the distinction between predecessor earnings, post-IPO consolidated earnings and income attributable to Class A shareholders.
- Verify the status and final amounts of the CVSR and Borrego grants, including any recovery or repayment consequences.
- Assess debt service, project-level distribution tests, letters of credit and the terms and proceeds of the post-year-end convertible notes.
- Check dividend coverage using cash available for distribution, rather than net income alone, and account for seasonal cash flows and debt restrictions.
- Evaluate exposure to PG&E, NRG control and service arrangements, and the outcome of the GenConn equipment dispute.